The hope for our collective survival in the face of a likely climate catastrophe has been vested in a combination of multilateral emissions rearrangements and national regulation. But the premise behind the core strategy—the 1997 Kyoto Protocol—must be debated. Assuming a degree of state subsidization and increasingly stringent caps on greenhouse gas (GHG) emissions, Kyoto posited that market-centric strategies such as emissions trading schemes and offsets can allocate costs and benefits appropriately so as to shift the burden of mitigation and carbon sequestration most efficiently. Current advocates of emissions trading still insist that this strategy will be effective once the largest new emitters in the Brazil-Russia-India-China-South Africa (BRICS) bloc are integrated in world carbon markets.

As climate crisis looms ever larger on the horizon, the demise of the Kyoto Protocol’s binding emissions-cuts commitments on wealthier countries will in the near future compel from them a renewed effort to promote market-incentivized reductions. In spite of widely-acknowledged market failure in the emissions trade, especially in Europe, several “emerging markets,” especially the BRICS, have begun the process of setting up or expanding their carbon trading and offset strategies now that (since 2012) they no longer qualify for Clean Development Mechanism (CDM) credits. The Kyoto Protocol had made provision for low-income countries to receive CDM funds for emissions reductions in specific projects, but the system was subject to repeated abuse.

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Yet attempts to resurrect market strategies will become more visible as the next global-scale climate treaty takes shape in December 2015 at the Paris summit of the United Nations Framework Convention on Climate Change (UNFCCC). Most notably, that 21st Conference of the Parties (COP21) is anticipated to remove the critical “Common but Differentiated Responsibility” clause that traditionally separated national units of analysis by per capita wealth.

The COP21 appears to already have been forestalled in late 2014 by the climate agreement between Xi Jinping and Barack Obama, representing the two largest absolute GHG emitters. That deal ensures world catastrophe, for in it China only begins to reduce emissions in 2030 and the U.S. commitment (easily reversed by post-Obama presidents) is merely to reduce emissions by 15% from 1990 levels by 2025. The BRICS bloc’s role in forging inadequate global climate policy of this sort dates to the 2009 Copenhagen Accord at the COP15 when a side-deal between Obama and four of the five BRICS’ leaders derailed the much more ambitious UNFCCC.

The failure of the carbon markets to date, especially the 2008-14 price crash which at one point reached 90% from peak to trough, does not prevent another major effort by states to subsidize the bankers’ solution to climate crisis. The indicators of this strategy’s durability already include commodification of nearly everything that can be seen as a carbon sink, especially forests but also agricultural land and even the ocean’s capacity to sequester carbon dioxide (CO2) for photosynthesis via algae. The financialization of nature is proceeding rapidly, bringing with it all manner of contradictions.

Due to internecine competition-in-laxity between COP negotiators influenced by national fossil fuel industries, the UN summits appear unable to either cap or regulate GHG pollution at its source, or jump-start the emissions trade in which so much hope is placed. European and United Nations turnover plummeted from a peak of $140 billion in 2008 to $130 billion in 2011, $84 billion in 2012, and $53 billion in 2013 even as new carbon markets began popping up. But after dipping to below $50 billion in 2014, volume on the global market is predicted by industry experts to recover to $77 billion (worth 8 gigatonnes of CO2 equivalents) in 2015 thanks to higher European prices and increased U.S. coverage of emissions, extending to transport fuels and natural gas.

However, geographically extreme uneven development characterizes the markets in part because of the different regulatory regimes. Since 2013 there have been new markets introduced in California, Kazakhstan, Mexico, Quebec, Korea and China, while Australia’s 2012 scheme was discontinued in 2014 due to the conservative government’s opposition. The price per tonne of carbon also differs markedly, with early 2015 rates still at best only a third of the 2006 European Union peak: California around $12, Korea around $9, Europe around $7.3, China at $3-7 in different cities, the U.S. northeast Regional Greenhouse Gas Initiative’s voluntary scheme at $5, New Zealand at $4 and Kazakhstan at $2. The market for CDMs collapsed nearly entirely to US$0.20/tonne.

These low prices indicate several problems.

First, extremely large system gluts continue: 2 billion tonnes in the EU, for example, in spite of a new “Market Stability Reserve” backstopping plan that aimed to draw out 800 million tonnes.

Second, the new markets suffer from such unfamiliarity with trading in such an ethereal product, emissions, that volume has slowed to a tiny fraction of what had been anticipated (such as in China and Korea).

Third, fraud continues to be identified in various carbon markets, as can be witnessed at the Carbon Market Watch This is, increasingly, a debilitating problem in the timber and forest-related schemes that were meant to sequester large volumes of carbon.

Fourth, resistance continues to rise to carbon trading and offsets in Latin America, Africa and Asia, where movements against reducing emissions from deforestation and forest degradation (REDD) are linking up (as the REDD Monitor website documents).

As a result, the introduction of market incentives to make marginal changes to emissions is simply not working: the cost of switching from coal to renewable energy remains in the range of $50/tonne, in contrast to the prevailing price on carbon.

An overriding danger has arisen that may cancel the deterrents to carbon trading: the international financial system has overextended itself yet again, perhaps most spectacularly with derivatives and other speculative instruments. It needs new outlets for funds. The rise of non-bank lenders doing “shadow banking,” for example, was by 2013 estimated to account for a quarter of assets in the world financial system, $71 trillion, a rise of three times from a decade earlier, with China’s shadow assets increasing by 42% in 2012 alone. The Economist last year acknowledged that “potentially explosive” emerging-market shadow banking “certainly has the credentials to be a global bogeyman. It is huge, fast-growing in certain forms and little understood.” As for the straight credit market, the main result of Quantitative Easing policies was renewed bubbling, with $57 trillion in debt added to the global aggregate from 2007-14, of which $25 trillion was state debt. By mid-2014 the total world debt of $200 trillion had reached 286 percent of global GDP, an increase from 269% in late 2007.

Global financial regulation appears impossible given the prevailing balance of forces, witnessed in failures at the 2002 Monterrey Financing for Development initiative and various G20 summits after 2008. As a result, the BRICS are especially important sites to track ebbs and flows of financial capital in relation to climate-related investments, what with so many expansive claims made about their counter-hegemonic character. In reality, in relation to both world financial markets and climate policy, the BRICS are not anti-imperialist but instead subimperialist.

The first-round routing of CDM funding went disproportionately to China, India, Brazil and South Africa from 2005 until 2012, but by then the price of CDM credits had sunk so low there was little point in any case. Moreover, according to Carbon Market Watch, “The environmental integrity of the other Kyoto offsetting mechanism Joint Implementation is even more questionable with over 90% of offsets issued by Russia and Ukraine with very limited transparency and no international oversight.”

As Naomi Klein pointed out in This Changes Everything, gaming the CDM became a profitable sport: “The most embarrassing controversy for defenders of this model involves coolant factories in India and China that emit the highly potent greenhouse gas HFC-23 as a by-product. By installing relatively inexpensive equipment to destroy the gas (with a plasma torch, for example) rather than venting it into the air, these factories— most of which produce gases used for air-conditioning and refrigeration—have generated tens of millions of dollars in emission credits every year.”

Similar problems of system integrity plague the carbon markets that have opened in China, according to a recent Carbon Tax Center report: “Authorities face high hurdles in program design, information provision and political acceptability if the eventual national program is to put an effective ‘price on carbon’ and actually constrain and reduce emissions.” China’s seven pilot projects launched in 2014 ostensibly cover 700 million tons of CO2 emissions (worth $135 million in deals last year), and when a national market emerges in 2020, there are estimates of a $3.5 trillion market. However, recall the frequent estimates of a $3 trillion global carbon market by 2020, and even one (from the lead Merrill Lynch trader) of $30 trillion (reported in the New York Times).

Within China, there is growing unease with carbon markets and at the Chinese Academy of Marxism, for example, Yu Bin’s essay on ‘Two forms of the New Imperialism,” argues that along with intellectual property, the commodification of emissions is vital to understanding the way capital has emerged under conditions of global crisis.

Regardless, an even greater speculative bubble in carbon finance can be anticipated in the next few years, as more BRICS establish carbon markets and offsets as strategies to deal with their prolific emissions. In South Africa, neither the 2011 National Climate Change Response White Paper nor a 2013 Treasury carbon tax proposal endorsed carbon trading, in part because of the oligopoly purchasing conditions anticipated as a result of two vast emitters far ahead of the others: the state electricity company Eskom and the former parastatal Sasol which squeezes coal and natural gas to make liquid petroleum at the world’s single largest emissions point source, at Secunda near Johannesburg. But by April 2014 carbon trading was back on the official policy agenda, thanks to the British High Commissioner whose consultants colluded with the Johannesburg Stock Exchange to issue celebratory statements about “market readiness.”

With all of South Africa’s carbon-intensive infrastructure under construction, the official Copenhagen voluntary promise by President Jacob Zuma—cutting GHG emissions to a “trajectory that peaks at 34% below a business as usual trajectory in 2020”—appear to be impossible to uphold, just four years after it was made. The state signaled its reluctance to impose limits on pollution in February 2015, when Environment Minister Edna Molewa gave Eskom, Sasol and other major polluters official permission to continue their current trajectories for another five years, ignoring Clean Air Act regulations on emissions of co-pollutants such as SO2 and NO2.

Other BRICS countries have similar power configurations, and in Russia’s case it led to a formal withdrawal from the Kyoto Protocol’s second commitment period (2012-2020) in spite of huge “hot air” benefits the country would have earned in carbon markets (for not emitting at 1990 levels) as a result of the industrial economy’s deindustrialization due to its exposure to world capitalism during the early 1990s. That economic crash cut Russian emissions far below 1990 Soviet Union levels during the first (2005-2012) commitment period. But given the 2008-13 crash of carbon markets—where the hot air benefits would have earlier been realised as €33/tonne “Joint Implementation” benefits (but by early 2013 fell to below €4/tonne)—Moscow’s calculation shifted away from the Kyoto Protocol, so as to promote its own oil and gas industries without limitation.

Binding emissions cuts were not in Russia’s interests, no matter that 2010-11 climate-related droughts and wildfires raised the price of wheat to extreme levels and did tens of billions of dollars of damage. The same kinds of self-interested albeit short-termist calculations are being made in the other BRICS, although their leaders regularly demanded (justifiably) larger northern industrial country cuts thanks to the historical legacy of carbon emissions.

The attraction of carbon trading in the new markets, no matter its failure in the old, is logical when seen within a triple context: a longer-term capitalist crisis which has raised financial sector power within an ever-more frenetic and geographically ambitious system; the financial markets’ sophistication in establishing new routes for capital across space, through time, and into non-market spheres; and the mainstream ideological orientation to solving every market-related problem with a market solution, which even advocates of a Post-Washington Consensus and Keynesian economic policies share. Interestingly, even Paul Krugman had second thoughts, for after reading formerly pro-trading environmental economist William Nordhaus’ Climate Casino, he remarked, “The message I took from this book was that direct action to regulate emissions from electricity generation would be a surprisingly good substitute for carbon pricing.”

That U-turn is the sort of hard-nosed realism that will be needed to disprove Klein’s thesis that capitalist crisis and climate crisis are conjoined. Instead, however, financial markets continue to over-extend geographically as investment portfolios diversify into distant, risky areas and sectors. Global and national financial governance prove inadequate, leading to bloated and then busted asset values ranging from subprime housing mortgages to illegitimate emissions credits. No better examples can be found of the irrationality of capitalism’s spatio-temporal-ecological fix to climate crisis than a remark by Tory climate minister Greg Barker in 2010: “We want the City of London, with its unique expertise in innovative financial products, to lead the world and become the global hub for green growth finance. We need to put the sub-prime disaster behind us.”

As BRICS are already demonstrating, though, new disasters await, for both overaccumulated capitalism in general and for what will be, for the next few years at least, under-accumulating carbon markets.

Patrick Bond is a political economist at the University of KwaZulu-Natal School of Development Studies in Durban, where since 2004 he has directed the Centre for Civil Society. Working closely with advocacy organizations, Patrick’s research presently covers political ecology (especially climate, energy and water), economic crisis, social mobilization, public policy and geopolitics.

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